SEC Filing: Dentsply Sirona

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File Number 0-16211

DENTSPLY International Inc.

(Exact name of registrant as specified in its charter)

Delaware		39-1434669
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

221 West Philadelphia Street, York, PA		17405-0872
(Address of principal executive offices)		(Zip Code)

(717) 845-7511

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At July 26, 2010, DENTSPLY International Inc. had 142,821,937 shares of Common Stock outstanding, with a par value of $.01 per share.

DENTSPLY International Inc.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Consolidated Statements of Operations	3

	Consolidated Balance Sheets	4

	Consolidated Statements of Cash Flows	5

	Consolidated Statement of Changes in Equity	6

	Notes to Unaudited Interim Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4	Controls and Procedures	41

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	43

Item 1A	Risk Factors	43

Item 2	Unregistered Sales of Securities and Use of Proceeds	43

Item 4	Submission of Matters to a Vote of Security Holders	43

Item 6	Exhibits	43

	Signatures	44

- 2 - -

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009

Net sales	$	565,086		$	552,832		$	1,111,030		$	1,059,781
Cost of products sold		277,491			267,164			541,397			508,381

Gross profit		287,595			285,668			569,633			551,400
Selling, general and administrative expenses		182,383			183,817			370,417			361,804
Restructuring and other costs		243			3,125			4,923			4,695

Operating income		104,969			98,726			194,293			184,901

Other income and expenses:
Interest expense		6,686			5,268			12,406			11,421
Interest income		(827	)		(1,512	)		(1,614	)		(3,468	)
Other expense (income), net		722			(50	)		1,667			868

Income before income taxes		98,388			95,020			181,834			176,080
Provision for income taxes		25,042			24,440			46,297			45,571

Net income		73,346			70,580			135,537			130,509
Less: Net income (loss) attributable to the noncontrolling interests		960			381			1,308			(1,433	)
Net income attributable to DENTSPLY International	$	72,386		$	70,199		$	134,229		$	131,942

Earnings per common share:
Basic	$	0.50		$	0.47		$	0.92		$	0.89
Diluted	$	0.49		$	0.47		$	0.91		$	0.88

Cash dividends declared per common share	$	0.05		$	0.05		$	0.10		$	0.10

Weighted average common shares outstanding:
Basic		144,779			148,577			145,772			148,546
Diluted		146,939			150,057			148,048			149,822

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

- 3 - -

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(unaudited)

	June 30,			December 31,
	2010			2009
Assets
Current Assets:
Cash and cash equivalents	$	340,347		$	450,348
Accounts and notes receivables-trade, net		351,304			348,684
Inventories, net		284,394			291,640
Prepaid expenses and other current assets		113,197			127,124

Total Current Assets		1,089,242			1,217,796

Property, plant and equipment, net		399,077			439,619
Identifiable intangible assets, net		76,998			89,086
Goodwill, net		1,208,765			1,312,596
Other noncurrent assets, net		23,185			28,835

Total Assets	$	2,797,267		$	3,087,932

Liabilities and Equity
Current Liabilities:
Accounts payable	$	106,864		$	100,847
Accrued liabilities		192,203			249,169
Income taxes payable		11,380			12,366
Notes payable and current portion of long-term debt		11,927			82,174

Total Current Liabilities		322,374			444,556

Long-term debt		462,976			387,151
Deferred income taxes		73,779			72,524
Other noncurrent liabilities		196,728			276,743

Total Liabilities		1,055,857			1,180,974

Commitments and contingencies

Equity:
Preferred stock, $.01 par value; .25 million shares authorized; no shares issued		-			-
Common stock, $.01 par value; 200.0 million shares authorized;
162.8 million shares issued at June 30, 2010 and December 31, 2009		1,628			1,628
Capital in excess of par value		198,237			195,495
Retained earnings		2,202,130			2,083,459
Accumulated other comprehensive (loss) income		(55,678	)		83,542
Treasury stock, at cost, 19.6 million shares at June 30, 2010 and 15.8 million shares at December 31, 2009		(670,603	)		(532,019	)
Total DENTSPLY International Equity		1,675,714			1,832,105

Noncontrolling interests		65,696			74,853

Total Equity		1,741,410			1,906,958

Total Liabilities and Equity	$	2,797,267		$	3,087,932

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

- 4 - -

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Six Months Ended
	June 30,
	2010			2009

Cash flows from operating activities:

Net income	$	135,537		$	130,509

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		29,438			26,373
Amortization		4,771			6,574
Deferred income taxes		(57	)		4,379
Share-based compensation expense		10,238			9,723
Restructuring and other costs - noncash		363			328
Excess tax benefits from share-based compensation		(4,666	)		(2,003	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net		(28,487	)		(34,458	)
Inventories, net		(9,111	)		2,291
Prepaid expenses and other current assets		(16,549	)		4,124
Accounts payable		12,603			(11,257	)
Accrued liabilities		4,183			(10,261	)
Income taxes payable		4,913			(9,878	)
Other, net		7,292			(1,085	)
Net cash provided by operating activities		150,468			115,359

Cash flows from investing activities:

Capital expenditures		(18,897	)		(24,957	)
Cash paid for acquisitions of businesses, net of cash acquired		(8,309	)		(2,986	)
Liquidation of short-term investments		-			214
Expenditures for identifiable intangible assets		(255	)		(1,258	)
Proceeds from sale of property, plant and equipment, net		279			998

Net cash used in investing activities		(27,182	)		(27,989	)

Cash flows from financing activities:

Net change in short-term borrowings		(5,237	)		36,342
Cash paid for treasury stock		(176,630	)		(9,778	)
Cash dividends paid		(15,741	)		(14,919	)
Proceeds from long-term borrowings		250,000			-
Payments on long-term borrowings		(240,108	)		(55,140	)
Proceeds from exercise of stock options		25,845			5,850
Excess tax benefits from share-based compensation		4,666			2,003

Net cash used in financing activities		(157,205	)		(35,642	)

Effect of exchange rate changes on cash and cash equivalents		(76,082	)		(3,848	)

Net (decrease) increase in cash and cash equivalents		(110,001	)		47,880

Cash and cash equivalents at beginning of period		450,348			203,991

Cash and cash equivalents at end of period	$	340,347		$	251,871

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

- 5 - -

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

(In thousands)

(unaudited)

									Accumulated
			Capital in						Other					Total DENTSPLY
	Common		Excess of			Retained			Comprehensive		Treasury			International			Noncontrolling			Total
	Stock		Par Value			Earnings			Income		Stock			Equity			Interests			Equity

Balance at December 31, 2008	$	1,628	$	187,154		$	1,838,958		$	39,612	$	(479,630	)	$	1,587,722		$	71,691		$	1,659,413
Comprehensive Income:
Net income		-		-			131,942			-		-			131,942			(1,433	)		130,509
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		-		-			-			9,907		-			9,907			1,245			11,152
Net gain on derivative financial instruments		-		-			-			7,631		-			7,631			-			7,631
Unrecognized losses and prior service pension cost, net		-		-			-			1,127		-			1,127			1			1,128

Comprehensive Income															150,607			(187	)		150,420

Exercise of stock options		-		(6,386	)		-			-		12,236			5,850			-			5,850
Tax benefit from stock options exercised		-		2,003			-			-		-			2,003			-			2,003
Share based compensation expense		-		9,723			-			-		-			9,723			-			9,723
Funding of Employee Stock Option Plan		-		(61	)		-			-		1,407			1,346			-			1,346
Treasury shares purchased		-		-			-			-		(9,778	)		(9,778	)		-			(9,778	)
RSU dividends		-		68			(68	)		-		-			-			-			-
Cash dividends ($0.10 per share)		-		-			(14,855	)		-		-			(14,855	)		-			(14,855	)
Balance at June 30, 2009	$	1,628	$	192,501		$	1,955,977		$	58,277	$	(475,765	)	$	1,732,618		$	71,504		$	1,804,122

									Accumulated
			Capital in						Other						Total DENTSPLY
	Common		Excess of			Retained			Comprehensive			Treasury			International			Noncontrolling			Total
	Stock		Par Value			Earnings			Income (Loss)			Stock			Equity			Interests			Equity

Balance at December 31, 2009	$	1,628	$	195,495		$	2,083,459		$	83,542		$	(532,019	)	$	1,832,105		$	74,853		$	1,906,958
Comprehensive Income:
Net income		-		-			134,229			-			-			134,229			1,308			135,537
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		-		-			-			(204,568	)		-			(204,568	)		(10,465	)		(215,033	)
Net gain on derivative financial instruments		-		-			-			63,672			-			63,672			-			63,672
Unrecognized losses and prior service pension cost, net		-		-			-			1,676			-			1,676			-			1,676

Comprehensive Income																(4,991	)		(9,157	)		(14,148	)

Exercise of stock options		-		(8,213	)		-			-			34,058			25,845			-			25,845
Tax benefit from stock options exercised		-		4,666			-			-			-			4,666			-			4,666
Share based compensation expense		-		10,238			-			-			-			10,238			-			10,238
Funding of Employee Stock Option Plan		-		207			-			-			1,132			1,339			-			1,339
Treasury shares purchased		-		-			-			-			(176,630	)		(176,630	)		-			(176,630	)
RSU distributions		-		(4,234	)		-			-			2,856			(1,378	)		-			(1,378	)
RSU dividends		-		78			(78	)		-			-			-			-			-
Cash dividends ($0.10 per share)		-		-			(15,480	)		-			-			(15,480	)		-			(15,480	)
Balance at June 30, 2010	$	1,628	$	198,237		$	2,202,130		$	(55,678	)	$	(670,603	)	$	1,675,714		$	65,696		$	1,741,410

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

- 6 - -

DENTSPLY International Inc. and Subsidiaries

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The year-end consolidating balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements and related notes contain the accounts of DENTSPLY International Inc. and Subsidiaries (DENTSPLY or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes included in the Company’s most recent Form 10-K for the year ended December 31, 2009.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein are substantially the same as presented in the Company’s Form 10-K for the year ended December 31, 2009, except as may be indicated below:

Accounts and Notes Receivable-Trade

Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $10.3 million and $13.3 million at June 30, 2010 and December 31, 2009, respectively.

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance for variable interest entities (“VIE”). The new guidance includes: (1) the elimination of the exemption from consolidation for qualifying special purpose entities, (2) a new approach for determining the primary beneficiary of a VIE, which requires that the primary beneficiary have both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, and (3) the requirement to continually reassess who should consolidate a VIE. The Company adopted this guidance on January 1, 2010, and the adoption did not have a material impact on the Company’s financial position and results of operations.

The Company consolidates all VIE where the Company has determined that it has the power to direct the activities that most significantly impact the VIE’s economic performance and shares in either the significant risks or rewards of the VIE. The Company continually reassesses VIE to determine if consolidation is appropriate.

Revisions in Classification

Certain revisions in classification have been made to prior years’ data in order to conform to current year presentation.

NOTE 2 – STOCK COMPENSATION

The Company maintains the 2010 Equity Incentive Plan (the “Plan”) under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSU”) and stock appreciation rights, collectively referred to as “Awards.” Awards are granted at exercise prices that are equal to the closing stock price on the date of grant. The Company authorized grants under the Plan of 13.0 million shares of common stock, plus any unexercised portion of cancelled or terminated stock options granted under the DENTSPLY International Inc. 2002 Equity Incentive Plan, as amended, subject to adjustment as follows: each January, if 7% of the total outstanding common shares of the Company exceed 13.0 million, the excess becomes available for grant under the Plan. No more than 2.5 million shares may be awarded as restricted stock and RSU, and no key employee may be granted restricted stock and RSU in excess of approximately 0.2 million shares of common stock in any calendar year.

- 7 - -

Stock options generally expire ten years after the date of grant under these plans and grants become exercisable, subject to a service condition, over a period of three years after the date of grant at the rate of one-third per year, except when they become immediately exercisable upon death, disability or qualified retirement. RSU vest 100% on the third anniversary of the date of grant and are subject to a service condition, which requires grantees to remain employed by the Company during the three year period following the date of grant. In addition to the service condition, certain key executives are subject to performance requirements. Similar to stock options, RSU become immediately exercisable upon death, disability or qualified retirement. It is the Company’s practice to issue shares from treasury stock when options are exercised.

At the date of grant, the Company uses the Black-Scholes option-pricing model to estimate the fair value of the non-qualified stock options. The assumptions used to calculate the fair value of the awards granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

The following table represents total stock based compensation expense and the tax related benefit for the three and six months ended June 30, 2010 and 2009:

	Three Months Ended				Six Months Ended
(in millions)	2010		2009		2010		2009

Stock option expense	$	2.9	$	3.0	$	5.8	$	5.9
RSU expense		1.8		1.7		3.8		3.2
Total stock based compensation expense	$	4.7	$	4.7	$	9.6	$	9.1

Total related tax benefit	$	1.5	$	1.5	$	2.9	$	2.6

The remaining unamortized compensation cost related to non-qualified stock options is $13.6 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.6 years. The unamortized compensation cost related to RSU is $10.2 million, which will be expensed over the remaining restricted period of the RSU, or 1.7 years.

The following table reflects the non-qualified stock option transactions from December 31, 2009 through June 30, 2010:

	Outstanding							Exercisable
				Weighted						Weighted
				Average		Aggregate				Average		Aggregate
(in thousands,				Exercise		Intrinsic				Exercise		Intrinsic
except per share data)	Shares			Price		Value		Shares		Price		Value

December 31, 2009		12,038		$	28.34	$	94,148		8,682	$	26.78	$	80,839
Granted		120			35.59
Exercised		(1,135	)		22.77
Forfeited		(64	)		34.28

June 30, 2010		10,959		$	28.96	$	37,622		7,652	$	27.43	$	33,196

The weighted average remaining contractual term of all outstanding options is 6.3 years and the weighted average remaining contractual term of exercisable options is 5.0 years.

- 8 - -

The following table summarizes the unvested restricted stock units and RSU dividend transactions from December 31, 2009 through June 30, 2010:

	Unvested Restricted Stock and Stock Dividend Units
				Weighted Average
				Grant Date
(in thousands, except per share data)	Shares			Fair Value

Unvested at December 31, 2009		662		$	31.94
Granted		250			32.93
Vested		(200	)		31.27
Forfeited		(6	)		32.59

Unvested at June 30, 2010		706		$	32.48

NOTE 3 – COMPREHENSIVE INCOME

The changes to balances included in accumulated other comprehensive income (“AOCI”), net of tax, in the consolidated balance sheets for the three and six months ended June 30, 2010 and 2009 are as follows:

	Three Months Ended						Six Months Ended
(in thousands)	2010			2009			2010			2009

Net income	$	73,346		$	70,580		$	135,537		$	130,509
Other comprehensive (loss) income:
Foreign currency translation adjustments		(137,840	)		91,338			(215,033	)		11,152
Net gain (loss) on derivative financial instruments		39,948			(34,840	)		63,672			7,631
Amortization of unrecognized losses and prior year service pension cost		913			(851	)		1,676			1,128
Total other comprehensive (loss) income		(96,979	)		55,647			(149,685	)		19,911

Total comprehensive (loss) income		(23,633	)		126,227			(14,148	)		150,420

Comprehensive (loss) income attributable to the noncontrolling interests		(5,734	)		6,053			(9,157	)		(187	)

Comprehensive (loss) income attributable to DENTSPLY
International	$	(17,899	)	$	120,174		$	(4,991	)	$	150,607

During the quarter ended June 30, 2010, foreign currency translation adjustments included currency translation losses of $134.2 million and losses of $3.6 million on the Company’s loans designated as hedges of net investments. During the quarter ended June 30, 2009, foreign currency translation adjustments included currency translation gains of $95.6 million and losses of $4.3 million on the Company’s loans designated as hedges of net investments. During the six months ended June 30, 2010, foreign currency translation adjustments included currency translation losses of $212.3 million and losses of $2.7 million on the Company’s loans designated as hedges of net investments. During the six months ended June 30, 2009, foreign currency translation adjustments included currency translation gains of $5.8 million and gains of $5.4 million on the Company’s loans designated as hedges of net investments. These foreign currency translation adjustments were offset by net gains on derivative financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

- 9 - -

The balances included in AOCI, net of tax, in the consolidated balance sheets are as follows:

	June 30,			December 31,
(in thousands)	2010			2009

Foreign currency translation adjustments	$	15,548		$	220,116
Net loss on derivative financial instruments		(50,128	)		(113,800	)
Unrecognized losses and prior year service pension cost		(21,098	)		(22,774	)
	$	(55,678	)	$	83,542

The cumulative foreign currency translation adjustments included translation gains of $125.9 million and $327.8 million as of June 30, 2010 and December 31, 2009, respectively, partially offset by losses of $110.4 million and $107.7 million, respectively, on loans designated as hedges of net investments. These foreign currency translation adjustments were offset by net losses on derivatives financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

NOTE 4 - EARNINGS PER COMMON SHARE

The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2010 and 2009:

	Three Months Ended				Six Months Ended
	2010		2009		2010		2009
Basic Earnings Per Common Share Computation
(in thousands, except per share amounts)

Net income attributable to DENTSPLY International	$	72,386	$	70,199	$	134,229	$	131,942

Common shares outstanding		144,779		148,577		145,772		148,546

Earnings per common share - basic	$	0.50	$	0.47	$	0.92	$	0.89

Diluted Earnings Per Common Share Computation
(in thousands, except per share amounts)

Net income attributable to DENTSPLY International	$	72,386	$	70,199	$	134,229	$	131,942

Common shares outstanding		144,779		148,577		145,772		148,546
Incremental shares from assumed exercise of dilutive options		2,160		1,480		2,276		1,276
Total shares		146,939		150,057		148,048		149,822

Earnings per common share - diluted	$	0.49	$	0.47	$	0.91	$	0.88

Options to purchase 3.1 million and 3.2 million shares of common stock that were outstanding during the three and six months ended June 30, 2010, respectively, were not included in the computation of diluted earnings per share since the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. There were 4.6 million and 7.8 million antidilutive shares of common stock outstanding during the three and six months ended June 30, 2009, respectively.

NOTE 5 – BUSINESS ACQUISITIONS

The acquisition related activity for the six months ended June 30, 2010 of $8.3 million, net of cash acquired, was related to two acquisitions in 2010 and two earn-out payments on acquisitions from 2008 and 2005. The purchase agreement for one acquisition provides for an additional payment to be made based upon the operating performance of the business; however, the Company does not expect the additional payment to be material to the financial statements. The results of operations for the two businesses have been included in the accompanying financial statements since the effective date of the respective transaction. The purchase prices have been allocated on the basis of preliminary estimates of the fair values of assets acquired and liabilities assumed. As of June 30, 2010, the Company has recorded a total of $4.4 million in goodwill related to the unallocated portions of the respective purchase prices, and all of this goodwill is associated with the Canada/Latin America/Endodontics/Orthodontics segment.

- 10 - -

As discussed in Note 1, Significant Accounting Policies, the Company adopted the accounting guidance for VIE. The adoption has not changed the Company’s prior conclusion that all current VIE should be consolidated. Under the new accounting guidance for VIE, the Company believes it is the primary beneficiary for all the VIE since the Company directs the activities that most significantly impacts the economic performance of the VIE and has the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE. The consolidation of the VIE net assets is immaterial to the Company’s financial position with most of the net assets recorded in goodwill and identifiable intangible assets.

NOTE 6 - SEGMENT INFORMATION

The Company has numerous operating businesses covering a wide range of products and geographic regions, primarily serving the professional dental market. Professional dental products represented approximately 97% of sales for the periods ended June 30, 2010 and 2009.

The operating businesses are combined into operating groups, which have overlapping product offerings, geographical presence, customer bases, distribution channels, and regulatory oversight. These operating groups are considered the Company’s reportable segments as the Company’s chief operating decision-maker regularly reviews financial results at the operating group level and uses this information to manage the Company’s operations. The accounting policies of the groups are consistent with those described in the Company’s most recently filed Form10-K in the summary of significant accounting policies. The Company measures segment income for reporting purposes as operating income before restructuring and other costs, interest expense, interest income, other income and expenses and income taxes.

United States, Germany and Certain Other European Regions Consumable Businesses

This business group includes responsibility for the design, manufacturing, sales and distribution for certain small equipment and chairside consumable products in the United States, Germany and certain other European regions. It also has responsibility for the sales and distribution of certain Endodontic products in Germany.

France, United Kingdom, Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses

This business group includes responsibility for the sales and distribution for certain small equipment, chairside consumable products, certain laboratory products and certain Endodontic products in France, United Kingdom, Italy, the Commonwealth of Independent States (“CIS”), Middle East, Africa, Asia (excluding Japan), Japan and Australia, as well as the sale and distribution of implant products and bone substitute/grafting materials in France, Italy, Asia and Australia. This business group also includes the responsibility for sales and distribution for certain laboratory products, implants products and bone substitution/grafting materials for Austria. It also is responsible for sales and distribution for certain small equipment and chairside consumable products, certain laboratory products, implant products and bone substation/grafting materials in certain other European countries. In addition this business group also includes the manufacturing and sale of Orthodontic products and certain laboratory products in Japan, and the manufacturing of certain laboratory and certain Endodontic products in Asia.

Canada/Latin America/Endodontics/Orthodontics

This business group includes responsibility for the design, manufacture, and/or sales and distribution of certain small equipment, chairside consumable products, certain laboratory products and Endodontic products in Brazil. It also has responsibility for the sales and distribution of most of the Company’s dental products sold in Latin America and Canada. This business group also includes the responsibility for the design and manufacturing for Endodontic products in the United States, Switzerland and Germany and is responsible for the sales and distribution of the Company’s Endodontic products in the United States, Canada, Switzerland, Benelux, Scandinavia, Austria, Latin America and Eastern Europe, and for certain Endodontic products in Germany. This business group is also responsible for the world-wide sales and distribution, excluding Japan, as well as some manufacturing of the Company’s Orthodontic products. In addition, this business group is also responsible for sales and distribution in the United States for implant and bone substitute/grafting materials and the sales and distribution of implants in Brazil. This business group is also responsible for the manufacture and sale of certain products in the Company’s non-dental business.

- 11 - -

Dental Laboratory Business/Implants/Non-Dental

This business group includes the responsibility for the design, manufacture, sales and distribution for most laboratory products, excluding certain countries mentioned previously, and the design, manufacture, and/or sales and distribution of the Company’s dental implant products and bone substitute/grafting materials, excluding sales and distribution of implants and bone substitute/grafting materials in the United States; France, Italy, Austria, and certain other Eastern European countries; Asia; and Australia. This business group is also responsible for most of the Company’s non-dental business.

Significant interdependencies exist among the Company’s operations in certain geographic areas. Inter-group sales are at prices intended to provide a reasonable profit to the manufacturing unit after recovery of all manufacturing costs and to provide a reasonable profit for purchasing locations after coverage of marketing and general and administrative costs.

Generally, the Company evaluates performance of the operating groups based on the groups’ operating income, excluding restructuring and other costs, and net third party sales, excluding precious metal content.

The following tables set forth information about the Company’s operating groups for the three and six months ended June 30, 2010 and 2009:

Third Party Net Sales

	Three Months Ended						Six Months Ended
(in thousands)	2010			2009			2010			2009

U.S., Germany and Certain Other European Regions Consumable Businesses	$	137,245		$	139,600		$	272,219		$	264,512
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses		121,601			118,860			231,886			223,988
Canada/Latin America/Endodontics/Orthodontics		170,715			157,306			327,335			301,986
Dental Laboratory Business/Implants/Non-Dental		136,265			137,833			281,375			270,851
All Other (a)		(740	)		(767	)		(1,785	)		(1,556	)
Total	$	565,086		$	552,832		$	1,111,030		$	1,059,781

Third Party Net Sales, Excluding Precious Metal Content

	Three Months Ended						Six Months Ended
(in thousands)	2010			2009			2010			2009

U.S., Germany and Certain Other European Regions Consumable Businesses	$	137,245		$	139,600		$	272,219		$	264,512
France, U.K., Italy and Certain Other European
Countries, CIS, Middle East, Africa, Pacific Rim Businesses		112,509			109,690			214,718			207,090
Canada/Latin America/Endodontics/Orthodontics		170,011			156,558			326,041			300,596
Dental Laboratory Business/Implants/Non-Dental		100,255			106,446			205,573			206,534
All Other (a)		(740	)		(767	)		(1,785	)		(1,556	)
Total excluding precious metal content		519,280			511,527			1,016,766			977,176
Precious metal content		45,806			41,305			94,264			82,605
Total including precious metal content	$	565,086		$	552,832		$	1,111,030		$	1,059,781

(a) Includes amounts recorded at Corporate headquarters.

- 12 - -

Inter-segment Net Sales

	Three Months Ended						Six Months Ended
(in thousands)	2010			2009			2010			2009

U.S., Germany and Certain Other European Regions Consumable Businesses	$	30,846		$	23,649		$	57,063		$	46,729
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses		5,037			3,063			8,656			6,447
Canada/Latin America/Endodontics/Orthodontics		29,357			24,219			54,677			52,817
Dental Laboratory Business/Implants/Non-Dental		30,915			28,193			57,595			55,149
All Other (a)		45,081			43,021			89,084			81,347
Eliminations		(141,236	)		(122,145	)		(267,075	)		(242,489	)
Total	$	-		$	-		$	-		$	-

Segment Operating Income

	Three Months Ended						Six Months Ended
(in thousands)	2010			2009			2010			2009

U.S., Germany and Certain Other European Regions Consumable Businesses	$	49,654		$	42,824		$	94,515		$	76,746
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses		5,536			4,624			5,407			7,525
Canada/Latin America/Endodontics/Orthodontics		49,141			45,468			97,163			95,525
Dental Laboratory Business/Implants/Non-Dental		22,495			23,934			44,957			46,190
All Other (b)		(21,614	)		(14,999	)		(42,826	)		(36,390	)
Segment operating income		105,212			101,851			199,216			189,596

Reconciling Items:
Restructuring and other costs		(243	)		(3,125	)		(4,923	)		(4,695	)
Interest expense		(6,686	)		(5,268	)		(12,406	)		(11,421	)
Interest income		827			1,512			1,614			3,468
Other expense (income), net		(722	)		50			(1,667	)		(868	)
Income before income taxes	$	98,388		$	95,020		$	181,834		$	176,080

(a) Includes amounts recorded at Corporate headquarters and one distribution warehouse not managed by named segments.

(b) Includes results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.

- 13 - -

Assets

	June 30,		December 31,
(in thousands)	2010		2009

U.S., Germany and Certain Other European Regions Consumable Businesses	$	565,160	$	602,272
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses		369,423		388,831
Canada/Latin America/Endodontics/Orthodontics		833,268		809,924
Dental Laboratory Business/Implants/Non-Dental		853,237		973,764
All Other (a)		176,179		313,141
Total	$	2,797,267	$	3,087,932

(a) Includes assets of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.

NOTE 7 - INVENTORIES

Inventories are stated at the lower of cost or market. At June 30, 2010 and December 31, 2009, the cost of $8.1 million, or 2.9%, and $7.8 million, or 2.7%, respectively, of inventories was determined by the last-in, first-out (“LIFO”) method. The cost of other inventories was determined by the first-in, first-out (“FIFO”) or average cost methods. The Company establishes reserves for inventory in order to present the net realizable value. The inventory valuation reserves were $31.7 million and $31.9 million as of June 30, 2010 and December 31, 2009, respectively.

If the FIFO method had been used to determine the cost of LIFO inventories, the amounts at which net inventories are stated would be higher than reported at June 30, 2010 and December 31, 2009 by $4.2 million and $4.0 million, respectively.

Inventories, net of inventory valuation reserves, consist of the following:

	June 30,		December 31,
(in thousands)	2010		2009

Finished goods	$	171,770	$	178,721
Work-in-process		51,389		53,056
Raw materials and supplies		61,235		59,863
	$	284,394	$	291,640

- 14 - -

NOTE 8 - BENEFIT PLANS

The following sets forth the components of net periodic benefit cost of the Company’s benefit plans and for the Company’s other postretirement employee benefit plans for the three and six months ended June 30, 2010 and 2009, respectively:

Defined Benefit Plans

Three Months Ended

Six Months Ended